The subprime mortgage market is toast, at least for the foreseeable future. And now the turmoil at American Home Mortgage Investment Corp. (AHM )âwhich made loans to home buyers with decent creditâsuggests that the troubles are spreading to the broader mortgage market. Fearing the worst, investors are nervously demanding higher rates for bonds from corporations with no direct subprime exposure.

But the history of the past 20 years indicates that the subprime debacle, as spectacular as it is likely to be, won't knock out the broader flow of credit in the economy. Since deregulation took hold in the 1980s, the U.S. has developed a financial system with a high degree of redundancy. Worthy corporate and individual borrowers have more than one avenue for raising funds. The financial system has become like the Internet: able to reroute credit around damaged sections with relative ease.

Take a look back at the "credit crunch" of the early 1990s. As big banks such as Citicorp, as it was called then, struggled with bad real estate debt, they cut back on lending. In particular, new bank loans to businesses virtually stopped in 1990 and did not resume until 1994.

But the credit crunch did not extend to the bond market. While banks kept their vaults closed, corporations raised almost $250 billion between 1990 and 1994 by issuing bonds. As a result, companies such as Wal-Mart Stores (WMT ), which borrowed billions over this period, had the money needed for expansion.